TaxTMI 
TaxTMI 
2017 (3) TMI 266
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....ial available on record. We find that the assessment order was framed u/s 143(3) of the Act, whereas, as is evident from page-1 itself, the ld. counsel for the assessee, Shri Vijay C. Kothari along with Shri Vijay Agarwal, appeared and were heard. The arguments advanced by the ld. counsel was duly considered, therefore, we are not satisfied with the argument of the ld. counsel for the assessee that proper opportunity was not provided to the assessee, consequently, this ground of the assessee is dismissed. 3. So far as, ground no. 2 & 3 with respect to computing the disallowance u/s 14A of the Act read with Rule 8D(2)(ii) at Rs. 60,04,84,033/- as against the disallowance computed by the assessee at Rs. 1,09,16417/- accepted by the ld. Assessing Officer and consequent disallowance u/s 14A of the Act r.w.r 8D(2)(iii) at Rs. 4,63,71,213/- as against the disallowance computed by the assessee at Rs. 1 lakh is concerned, the crux of argument, on behalf of the assessee, before us, is that own funds substantially covers the investment made by the assessee as per settled position of law and further the method of calculation followed by the assessee has to be accepted for making disallowance....
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.... as well as by the Tribunal and decided the issue in favour of the assessee. The assessee has identified and quantified specific amount of interest expenses and also the investment with borrowed funds in the past and the investments have been co-related. It is also noted that even the Ld. Assessing Officer, as in the past, allowed the interest. The Assessing Officer was satisfied with the disallowances, suo-moto made by the assessee. It is noted that in all the earlier years i.e. Assessment Year 2008-09 to 2010-11, the issue of disallowance was considered by the Ld. Commissioner of Income Tax (Appeal) as well as the Tribunal. On the issue of disallowance, out of interest expenses, the Ld. Commissioner of Income Tax (Appeal) reduced the disallowance to Rs. 10 lakh and the Tribunal affirmed the order of the First Appellate Authority. For the year under appeal, the Ld. Commissioner of Income Tax (Appeal) affirmed the order of the Assessing Officer on the point of disallowance out of expenses. The Ld. Commissioner of Income Tax (Appeal) issued enhancement notice dated 20/02/2015, asking the assessee to file the reply. The assessee requested for adjournment but the request was denied an....
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.... it was held was applicable and the issue related to computation under sub Rule (2) and the three sub-clauses.Reference was made to clause (ii) of sub Rule (2) to Rule 8D of the Rules and it has been held:- "2.4. ... Only clause (ii) is involved in the present appeal. The AO considered the total interest paid by the assessee for allocating a sum of [Rs.] 36.76 lakh to the investments yielding exempt income. At the threshold it needs to be determined as to whether any interest expenditure can be attributed to the securities on which such exempt income was earned. The question of disallowance of such interest u/s 14A would arise only if some expenditure is said to have been incurred in relation to investment in such securities. In this regard, it is observed that the assessee made total investment of [Rs.] 6.33 crore in shares or securities resulting into exempt income. As against that share holder funds stood at [Rs.] 53.79 crore at the end of the year. Thus, it is evident that the amount invested in such shares or securities is far in excess of share holders' funds." 9. Reference was made to the decision of the Delhi High Court in CIT vs. Tin Box Co. [2003] 260 ITR 637 (Del) ....
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....ance under Section 14A of the Act. Thus, the interpretation of clause (ii) to sub Rule (2) to Rule 8D of the Rules by the CIT(A) and the Tribunal is not sustainable. The said clause expressly states that where the assessee has incurred expenditure by way of interest in the previous year and the interest paid is not directly attributable to any particular income or receipt then the formula prescribed would apply. Under clause (ii) to Rule 8D(2) of the Rules, the Assessing Officer is required to examine whether the assessee has incurred expenditure by way of interest in the previous year and secondly whether the interest paid was directly attributable to particular income or receipt. In case the interest paid was directly attributable to any particular income or receipt, then the interest on loan amount to this extent or in entirety as the case may be, has to be excluded for making computation as per the formula prescribed. Pertinently, the amount to be disallowed as expenditure relatable to exempt income, under sub Rule (2) is the aggregate of the amount under clause (i), clause (ii) and clause (iii). Clause (i) relates to direct expenditure relating to income forming part of the to....
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....ssessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001." 3.5. Section 14A of the Act postulates and states that no ....
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....ture by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely : - A x B/C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. (3) For the purposes of this rule, the "total assets" shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of....
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....ection (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The pr....
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....lation to exempt income has three components. i. The first component being the amount of expenditure directly relating to income which does not form part of the total income. ii. The second component being computed on the basis of the formula given therein in a case where the assessee incurs expenditure by way of interest which is not directly attributable to any particular income or receipt. The formula essentially apportions the amount of expenditure by way of interest (other than the amount of interest included in clause (i)) incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. iii. The third component is an artificial figure - one half percent of the average value of the investment, income from which does not or shall not form part of the total income, as appearing in the balance sheets of the assessee, on the first day and the last day of the previous year. It is the aggregate of these three components which would constitute the expenditure in relation to exempt income and it is this amount of expenditure which would be ....
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....e arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. Under the proviso, it has been stipulated that nothing in the section will empower the Assessing Officer, for an assessment year beginning on or before April 1, 2001, either to reassess under section 147 or pass an order enha....
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....lso incorporated the essential requirements of sub-section (2) of section 14A before the Assessing Officer proceeds to apply the method prescribed under sub-rule (2)." 3.13. The sum and substance of the foregoing discussion is that section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act. Under sub-section (2) of Section 14A of the Act, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, the Assessing Officer can determine the amount of expenditure, which should be disallowed in accordance with such method as prescribed i.e. Rule-8D of the Rules, therefore, the Assessing Officer at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on the count after making reference to the accounts only then he is entitled to....
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....ty in all litigations, including litigation arising out of fiscal statutes, earlier decisions on the same question should not be reopened unless some fresh facts are found in the subsequent year.-Radhasoami Satsang vs. CIT (1991) 100 CTR (SC) 267 : (1992) 193 ITR 321 (SC) applied. (Para 6) The same issue, namely, whether the assessee is entitled to relief under s. 80-I or not, was decided by the Tribunal in favour of the assessee in respect of asst. yr. 1992-93, which order has now been followed by the Tribunal while disposing of appeals for the three years in question. The AO disallowed assessee's claim only on the ground that similar claim had been disallowed in earlier years. No fresh material has been brought on record by the lower authorities, warranting fresh consideration. Admittedly, order of the Tribunal for asst. yr. 1992-93 has not been challenged by the Revenue. Similarly, orders of the Tribunal on the issue, pertaining to asst. yrs. 1995-96 and 1997-98 have attained finality. In the aforenoted factual background, one fails to appreciate as to how, when there is no change in the business of the assessee, relief under s. 80-I can be denied to it in respect of some of....
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....erein, squarely covers the present appeal before us. We are aware that the doctrine of res-judicata does not strictly apply to the Income Tax Proceedings, however, where the Department had been taking consistent stand in a particular way (in the case of the present assessee in its favour) and the Department has not pin pointed any distinguished facts, therefore, U-turn is not permitted. More specifically, when in earlier and later years, the identical issue was decided in favour of the assessee. Respectfully following the ratio laid down in the aforementioned cases, from the view point of consistency. In the impugned year before us, the assessee filed return declaring income of Rs. 15,63,72,847/- on 28/11/2011 and also declared books profit of Rs. 132,62,63,171/- u/s 115JB of the Act which was later revised to Rs. 13,98,29,240/- on 22/03/2013 under normal provisions of the Act and Rs. 132,62,63,170/- of book profit u/s 115JB of the Act. The ld. Assessing Officer scrutinized the return of income u/s 143(3) of the Act, determining total income at Rs. 143,97,49,493/- vide assessment order dated 17/02/2014, as book profit u/s 115JB of the Act after making certain disallowances and adju....
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.... that the Tribunal vide order dated 27/03/2015 (ITA No. 202/Mum/2013 and 207/Mum /2013) for Assessment Year 2009-10, followed the decision of the Tribunal in the case of assessee itself for Assessment Year 2008-09 with respect to disallowance made by the Assessing Officer under rule-8D(2)(ii) and 8D(2)(iii) of the Rules along with the disallowance of the administrative expenses. In that case, the Ld. Commissioner of Income Tax (Appeal) restricted the disallowance to Rs. 10 lakh against the suomoto disallowance made to the tune of Rs. 1 lakh. The disallowance to the tune of Rs. 10 lakh was upheld by the Tribunal against the claim of Rs. 1 lakh by the assessee. So far as, the contention of the ld. counsel for the assessee that the disallowance may be restricted to Rs. 1 lakh only, is concerned, we are not satisfied with such reasoning because the rule of consistency applies to both sides and since, the Tribunal for Assessment Year 2008-09, 2009-10, being on identical facts, directed the Assessing Officer to restrict the disallowance as contained in the order of the Tribunal dated 27/03/2015 (for Assessment Year 2009-10), for the present Assessment Year also, the disallowance is direc....
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....brief, are that the assessee declared income of Rs. 188,50,28,066/- in its return filed on 29/09/2008 which was processed on 27/07/2009, u/s 143(1) of the Act. Since the case was selected for scrutiny notice u/s 143(2) of the Act was issued to the assessee on 04/08/2009. The Assessing Officer vide order dated 27/12/2010, framed u/s 143(3) of the Act, determining the total income at Rs. 191,99,06,040/-(Assessment Year 2008- 09). The Assessing Officer received information from ITO- 25(1)(4), Mumbai, vide letter dated 25/04/2012 (received by the Assessing Officer on 01/05/2012) that certain payments amounting to Rs. 43,50,00,000/- were made by the assessee company by way of advances to M/s PRS Developers (proprietor Shri Nilesh J. Thakur) on various dates in Financial year 2007-08 and the said parties accounted such receipts towards expenses related to development works at Kandivali Project for which no documentary evidences were maintained by the said concern. The Assessing Officer made enquiries with the assessee company and found that the assessee company made substantial payments to M/s PRS Developers. There was also information with the Assessing Officer that M/s PRS developers h....
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....rguments advanced from respective side. We find that the primary facts relating to all the transactions entered by the assessee during financial year 2007-08 were very much available before the Assessing Officer when he framed the original assessment u/s 143(3) of the Act, therefore, no new material was made available at the later stage. Broadly, the reason for reopening is based upon the finding arrived at by the ITO of Shri Nilesh Thakur and it can be said it was a merely borrowed satisfaction. In a landmark decision the Hon'ble Apex Court in Kelvinator of India Ltd (2010) 320 ITR 561 has evolved a broad principle as under what circumstances reassessment can be framed. Likewise in Green World Corporation vs ITO (2009) 314 ITR 81 (SC), the Hon'ble Apex Court held that the order passed by the Assessing Officer at the dictate of the CIT is 'nullity'. Likewise the Hon'ble High Court of Rajashthan in Syntex Ltd. (2009) 313 ITR 221 held that 'initiation based on the opinion of the Assessing Officer of other party, is 'borrowed satisfaction', consequently, not sufficient reason to believe for escapement of income. Further, the Hon'ble Apex Court dismi....
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....(4), having jurisdiction upon Shri Nilesh Thakur. The basic requirement section 148 is that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment, thus, the law does not permit such a action. The following decisions supports our view:- 1) CIT vs Kelvinator of India Ltd. (2002) 256 ITR 1 (Del.) 2) Sheth Brother vs JCIT (2001) 251 ITR 270 (Guj.) 3) CIT vs Corporation Bank Ltd. (2002) 254 ITR 791 (SC) 4) Garden Silk Mills P. Ltd. Vs DCIT (1999) 237 ITR 668 (Guj.) 5) CIT vs Hickson & Dadajee Ltd. (1980) 121 ITR 368 (Born.) 6) Jindal Photo Films Ltd. vs DCIT (1998) 234 ITR 170 (Del.) 7) Garden Silk Mills vs DCIT (1996) 222 ITR 68 (Guj.) 8) Mercury Travels DCIT (2002) 258 ITR 533 (Cal.) 9)JCIT vs George Williamson (Assam) Ltd. (2002) 258 ITR 126 (Gauhati) 10) CIT vs Sambhar Salt ltd. (2003) 262 ITR 675 (Raj.) We find that there was no new tangible material with the Assessing Officer to form a belief that income chargeable to tax had escaped assessment, thus, in view of the decision from Hon'ble Rajasthan High Court (supra) reopening is not permissible on the basis of borrowed satisfaction rather there should be ....
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....ved from ITO 25(1)(iv). The totality of facts clearly indicates that no new material came to the possession of the Assessing Officer leading to conclude that the income has escaped assessment, thus, issuance of notice for reopening and reassessment order passed u/s 143(3) r.w.s.147 of the Act was rightly held to be unsustainable in law. The existence of tangible material is necessary to ensure against an arbitrary exercise of power, thus, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income tax (Appeals). This ground of the Revenue is, therefore, dismissed. 3. So far as, deleting the disallowance of Rs. 34,01,095/-, u/s 36(1)(iii) of the Act is concerned, we are reproducing hereunder the relevant finding of the ld. First Appellate Authority for ready reference:- "13.3. I have considered the A.O.'s order as well as the appellant's AIR submission. Further 1 have perused the matter in its entirety and the aforesaid findings of the A.0, I have also perused the copy of the plaint along with the records and documents filed before the Hon'ble Bombay High Court in Suit No. 2576 of 2011 and the order of Hon'ble Bombay High Court. On perusal of ....
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.... district. The appellant has produced records and documents in support of the transactions entered into with Shri Nilesh Janardhan Thakur and his group entities. All facts obtained from the records and documents reveal that the appellant had provided funds to Shri Nilesh Thakur for land acquisition in the project areas. In view of the same, any contrary submissions/explanations given by Shri Nilesh Thakur during the course of his assessment and appellate proceedings cannot be considered as a foundation for arriving at any negative inference in the case of the appellant. 13.4. The fact that Shri Nilesh Thakur, during the course of his assessment proceedings for A.Y.2008-09 and 2009- 10 had explained that he had received amounts towards the development of project at Samata Nogar, Kandivali (E) Mumbai and (or development of World Trade City at Garodia Nagar, Goregaon. Mumbai is clearly borne from the findings recorded in his assessment order for A. Y 2008-09 and 2009-10. But it is equally relevant note that Shri Nilesh Thakur could not produce/furnish any evidence in support of the said claim. The appellant, during the course of the inquiry before the various Authorities has taken ....
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....r. It was submitted that the funds in the bank account were fungible and merely because there was negative balance in the current account on a particular date, it cannot be inferred that the payments made was out of borrowed fund It was also submitted that the factum that the funds were fungible has been accepted by the AD himself in so far as the AD has restricted the disallowance of interest only till the date when there was positive balance in the current account maintained with the bank. The appellant's A.R's in support, relied on the decisions in cases of Hon'ble Supreme Court in the case of Munjal Sales Corporation v CIT (supra) and Hon'ble Bombay High Court in CIT v Reliance Utilities and Power Ltd. (supra) wherein it was held that where the capital and profits are more than the interest free funds advanced, then it has to be presumed that such interest free advance were given out of interest free capital available. 13.6 I find that the appellants own funds as on 31.3.2007 and 31.3.2008 were as under: As on 31.3.2007 As on 31.3.2008 Share Capital 82,00,000 203,02,00,000 Reserves & Surplus 171,45,01,507 297,79,91,248 Total 172,27,01,507 500,8....
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.... to the subsidiaries had been given out of own funds of the assessee company deployed in the business. It was also contended that the net profit after tax and before depreciation during the year stood at Rs. 7054.84 crores. Thus, the net profit for the year under consideration exceeded not only the incremental loans given to the subsidiaries during the year but even exceeded the total interest free loans of Rs. 2988.98 crores given to the subsidiaries as on 31/3/2002. It was also contended that in the absence of any nexus between the interest bearing borrowed funds and the interest free loans given to subsidiaries and considering the fungibility of funds and the fact that own funds far' exceeded such loans, it has to be presumed that such interest free loans had been given out of own funds. 5.3 The ld. CIT(A) after considering the submissions of the assessee and cases relied upon on behalf of the assessee, details given at page 18 of the impugned order, held that borrowed funds to the extent of Rs. 9.89 crores was actually utilized for advancing interest free advances to subsidiaries. Therefore, ld C1T(A) confirmed the action of the 110 in disallowing interest on account of ....
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....d in the overdraft account of the assessee,' in such a case it should be presumed that the taxes were paid out of profits of the year and not out of the overdraft account for the running of the business. Considering subsequent decision of the Hon'ble Jurisdictional High Court in the case of Reliance Utilities & Power Ltd. (supra), wherein it was specifically held that if interest free funds available to an assessee is sufficient to meet its investment, it can be presumed that the investments were made from the interest free funds available with the assessee. Therefore, considering the fact that the assessee had its own funds more than the loans given to its subsidiaries and also in the absence of any nexus establishing that the interest bearing 'borrowed funds were given us interest free to its subsidiaries, we hold that the disallowance of interest is not justified. Therefore, interest is allowable under section 36(1)(iii) of the Act. Hence, ground No.2 of the appeal taken by the assessee is allowed. " 13.8 Thus, having taken note of the entire facts available on record and also after taking note of appellant's own fund availability, which is evident from the ap....
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....6) order dated 28/05/2012. His stand is affirmed. This ground of the Revenue is also dismissed. 4. So far as, the merits of the case is concerned the factual finding recorded by the ld. Commissioner of Income Tax (Appeals) is reproduced hereunder for ready reference and analysis:- "13.1. As held by me hereinabove, the order passed by the AO is not sustainable since the notice issued for reopening of assessment was invalid. However, the issue raised in ground of appeal no.3 is also adjudicated hereunder since the A.R.'s have made detailed submissions on merits of the case also. On merits of the case also, I find that the AO has computed disallowance of interest for the reasons discussed at para 5 of the assessment order. According to the AO, the transactions of the appellant with Shri Nilesh J. Thakur, through his proprietorship concern PRS Enterprises and Acecard Infrasol Pvt. Ltd., were for non-business purposes. For arriving at this conclusion, the AO has referred to the enquiries made by the DDIT (Inv), Unit I(2), Mumbai; the statement recorded of Mr. Feroze K. Bhatena Director & Principal Officer of the appellant company; assessment order for A.Y. 2008-09 in case of Shri N....
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....rom the above it is clear that Shri NJ Thakur claimed to be a partner with my assessee and claims to have received money as advance for various projects in Bombay. However, neither Shri NJ Thakur nor my assessee have submitted a single documentary evidence regarding their association with each other through partnership or through appointment as consultant / agent / any other relationship. My assessee has not recognized Shri N. J. Thakur as a partner and no partnership agreement was made. Shri N. J. Thakur could not produce any evidence whatsoever regarding the alleged projects he has undertaken on behalf of my assessee. Based on the above findings, the AO of Shri N. J. Thakur proceeded to assess the amounts received by his proprietorship concern viz., PRS Enterprises u/s.56(2)(vi) as an amount received without consideration. The AO of Shri N. J. Thakur has clearly given the findings that there is no business relation between Shri NJ Thakur and my assessee. g. Para 5.5 From the detailed facts narrated above it is very clear that there is a clear contradiction between the claim of my assessee and Shri NJ Thakur. The assessee claims to have paid the sum as advance towards purchase ....
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....in as to why proportionate disallowance for the interest bearing funds utilized for non business purposes should not be disallowed for which the assessee simply stated that the payments are wholly and exclusively for the purpose of business. The submission of the assessee has been considered, however the same is not acceptable in absence of any evidences. Accordingly, the interest disallowance on such payments is discussed hereunder;" 13.2 Amid appellate proceedings, the appellant's AIR has strongly pleaded against the A.O's action and filed a detailed written submission in. support of his contention, the relevant portion of the same is extracted as under.: l. On the merits of the case we have to reiterate the submissions mode by us before the AO vide our letter dated 7.1.2013 2. We further reiterate and submit that we had given advances to Shri Nilesh Thakur and his group concerns for acquiring large tracts of land in the Panvel, Aligabh, Pen and Raigad areas (" Project Areas"). 3. The lands proposed to be acquired in the project areas were wholly and exclusively for the purposes of our business activities. 4. We had appointed Shri Nilesh Janardhan Thakur 10....
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....hat where the capital and profits are more than the interest free funds advanced, then it has to be presumed that such interest free advance were given out of interest free capital available. The appellants own funds as on 31.3.2007 and 31.3.2008 were as under:- As on 31.3.2007 As on 31.3.2008 Share Capital 82,00,000 203,02,00,000 Reserves & Surplus 171,45,01,507 297,79,91,248 Total 172,27,01,507 500,81,91,248 2. Even for the previous year the net profit of the appellant company was Rs. 126,19,01,513/- which is in excess of the amounts given to Shri Nilesh J. Thakur of Rs. 43.50 crores. 3. It is further submitted that the AO has not established any nexus in between the borrowed funds and tile amounts given to Shri Nilcsh J. Thakur for land aggregation. The AO has merely computed the disallowance on the basis of the entries in the 'Over draft Account' maintained by the appellant with its bankers. The AO has computed the disallowance of interest only for the period during which there was' a negative balance the moment the balance in the overdraft account turned positive, the AO has not computed any disallowance. Disallowance computed 011 t....
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....the appellant. The Hon'ble Bombay High Court passed an order dated 19thOctober 2011 in the aforesaid Suit and decreed the monies, assets and properties, illegally misappropriated by Shri Janardhan Thakur and his entities in favour of the appellant . 13.3 Having regard to the above admitted facts recorded in the suit filed by the appellant before the Hon'ble Bombay High Court which are duly supported by records and documents filed as annexures before the Hon'ble Bombay High Court, the amounts advanced by the appellant are only for acquisition of lands in the Project areas of Panvel, Allbaugh, Pen and Raigad district. The appellant has produced records and documents in support of the transactions entered into with Shri Nilesh Janardhan Thakur and his group entities. All facts obtained from the records and documents reveal that the appellant had provided funds to Shri Nilesh Thakur for land acquisition in the project areas. In vievv of the same, any contrary submissions/explanations given by Shri Nilesh Thakur during the course of his assessment and appellate proceedings cannot be considered as a foundation for arriving at any negative inference in the case of the appel....
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....ing the course of the regular business activity of the appellant. The funds advanced by the appellant to Shri Nilesh Janardhan Thakur are thus held to be for appellant's business purposes. Accordingly, it is held that the disallowance computed out of claim of deduction of interest u/s. 36(J)(iil) was not called for In the aforesaid facts. 13.5. Even further to the afore-stated facts, the appellant's A.R's have also submitted that the appellant has a common pool of funds i.e. own funds and borrowed funds and that the appellant had sufficient own funds as on the date of advancing funds to Shri Nilesh Janardhan Thakur. It was submitted that the funds in the bank account were fungible and merely because there was negative balance in the current account on a particular date, it cannot be inferred that the payments made was out of borrowed fund. It was also submitted that the factum that the funds were fungible has been accepted by the AO himself in so far as the AO has restricted the disallowance of interest only till the date when there was positive balance in the current account maintained with the bank. The appellant's A.R"s in support, relied on the decisions in c....
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....f of the assessee that assessee's own funds were far in excess of the interest free loans given to its subsidiaries: It was contended that as per audited accounts.. assessee's own funds as on 31/3/2002 stood at Rs. 25,136.76 crores and, therefore, interest free loans given to its subsidiaries should be considered as having been given out of its own funds. It was contended that assessee had' not taken any specific interest bearing loans for advancing interest free loans to its subsidiaries. It was submitted that in view of the fungibility of the funds available, it can be legitimately presumed that the interest free loans given to the subsidiaries had been given out of own funds of the assessee company deployed in the business. It was also contended that the net profit after tax and before depreciation during the year stood at Rs. 7054.84 crores. Thus, the net profit for the year under consideration exceeded not only the incremental loans given to the subsidiaries during the year but even exceeded the total interest free loans of Rs. 2988. 98 crores given to the subsidiaries as on 31/3/2002. It was also contended that in the absence of any nexus between the interest bear....
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....n would arise that investment would be out of interest free funds generated or available with the company. It was held that if interest free funds were sufficient 10 meet the investments mode, in that case a presumption is established that the borrowed capital was used for the purpose of business and the interest expenditure is deductible under section 36(1)(iii) of the Act. The similar view has also been considered by the Hon'ble Calcutta High Court in Wool Combers of India Ltd., 134 ITR 219 (Cal), wherein it was held that if there were sufficient profits available to meet the advance fax liability and the profits were deposited in the overdraft account of the assessee,' in such a case it should be presumed that the taxes were paid out of profits of the year and not out of the overdraft account for the running of the business. Considering subsequent decision of the Hon'ble Jurisdictional High Court in the case of Reliance Utilities & Power Ltd. (supra), wherein it was specifically held that if interest free funds available to an assessee is sufficient to meet its investment, it can be presumed that the investments were made from the interest free funds available with the a....
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....ment proceedings for AY 2008-09 and 2009-10 duly explained that he received the amounts and during the course of enquiries before various authorities he took a consistent stand that advances were given for land aggregation and admitted to have received the funds from the assessee company. Shri Nilesh Thakur also admitted before the Hon'ble High Court regarding true nature of transaction and took a diametrically opposite stands on the nature of purpose of advances. The admitted stand of Nilesh Thakur in appellate proceeding for AY 2009-10 is duly supported by the record, which is further supported by the letter of the assessee company dated 16/07/2007 and subsequent acceptance vide letter dated 19/07/2007 given by Shri Thakur to the assessee company. In para 13.6 (page- 45) of the impugned order the ld. Commissioner of Income Tax (Appeals) has duly examined the availability of own funds as on 31/03/2007 and 31/03/2008, wherein the net profit of the year was Rs. 126,19,01513/- which includes current years overdraft maintained with the bank and the assessee has not made any specific borrowing for advancing the funds to Shri Nilesh Thakur. The ld. Commissioner of Income Tax (Appeals) h....